March 2012

03/27/2012

A solid foundation for growing your business includes having strong people on your team, a selling and operations function that is firing on all cylinders and an accounting and finance function that ties it all together.

Think of each component, or function, within your business as three legs of a stool.

If one leg is weak or broken, then the stool will collapse when weight is put on it.

The strength of two of the legs won't prevent the stool from dropping you on the ground hard if one leg is weak and neglected.

Where is Your Weak Link?

That is what happens in a business when an unexpected event happens that hurts your financial results. You can get away with a weak financial function for a little while. But it will catch up to you real fast if your revenues take a hit because of a hiccup in the economy or maybe the competition snags one of your customers.

Allowing your accounting and financial function to be a weak link (a weak leg on the stool) adds unnecessary risk and exposure.

If you had a stool like that in your home you would fix it or replace it.

From time to time, I will write here about personal finance issues and the use of personal debt. It is such an important part of winning financially that I want to share some tips and strategies with you.

Student Loans Are Dangerous

One of the biggest enemies of smart financial management right now is student loans. Students, and parents, are taking on student debt at a mind-boggling rate. Total student loans just passed the $1 trillion mark. And it is climbing fast.

Student debt has surpassed total credit card debt and total auto loans.

But here is the point everyone is missing. The $1 trillion of student debt is owed by about 37 million borrowers. That’s an average of about $27,000 per person.

The average credit card debt per person is in the $5,000 range. And the average auto loan balance is just under $10,000.

Here’s the Deal

My view is that 6 out of every 10 people who take on student loans are harmed financially. Think about that for a minute.

You wouldn't send your child out on a drive across town if you knew there was a 60% chance they would be seriously hurt before they returned.

You wouldn't fly on an airplane if you knew the odds of your plane going down in flames were 60%. You would find an alternative means to get where you are going.

My advice for you is to seriously consider outlawing the use of student loans in your family. More and more private lenders are trying to get parents to take out student loans for their kids or having parents co-sign for their kids. Just say no… please.

Freedom from Student Loans Blog

I will be starting a blog soon devoted to helping you learn why student loans are such a nasty form of debt. Send me an email if you would like me to let you know when that blog is up and running.

I'd like to see you win financially in life.

Freedom from student loans is an important part of your journey toward winning in life. I hope I help in some small way in your success along that path.

03/21/2012

Here are three areas/factors you need to evaluate in your accounting and finance function. I like to grade a company's accounting operation in these three categories on a scale of 1 to 10.

Confidence Factor - This goes right to the heart of whether the people backing and supporting you financially have confidence in your numbers. You also want to determine if your management team has confidence in the financial information they receive. A lack of confidence is a big warning sign that your accounting function is letting you down.

Insight Factor - This component takes a look at whether the information coming from your accounting and financial function is insightful or not. Most accountants don’t think in terms of really providing insight to others. Big mistake. This is an important part of how you create trust and confidence with lenders and investors.

Accuracy and Speed Factor - The last component is focused on whether people trust the financial information you provide. Nothing kills your credibility more than providing financial information that is inaccurate or tends to bounce around and change all the time. When you provide accurate information quickly, and you do it consistently month to month, you set yourself out as a company that has its act together. Lenders and investors love it and you will forge a strong relationship with them that will last a long, long time.

Sit down with your Controller or your CFO and rate the accounting function on a scale of 1 to 10 in each of those three areas.

Then measure the progress they make in each area over the next three months.

03/19/2012

One of the important roles of your Controller is to ensure transactions are recorded accurately and promptly. In accounting department lingo, they have to make sure the general ledger is accurate and complete.

The general ledger has to be in good shape so you have a good basis for creating fast and accurate financial statements and analysis.

“Converting Controllers to CFOs is… tough. The skills are the same but the personality is different, and even the Mayo Clinic isn’t performing personality transplants just yet. Controllers set budgets, squeeze dollars, and control. CFOs sell forecasts. One sells the outside world. The other squeezes internally.” The Six-Month Fix, by Gary Sutton

The role of a Chief Financial Officer (CFO) is much different than that of a Controller.

As you start getting traction on growing your company don’t make the mistake of going without wise CFO counsel.

It isn’t an easy transition. But you will have to do it to get to the next level.

03/16/2012

When you own a small to medium size business, the line between your personal finances and your business finances can be tricky to navigate. Of course, you need to have them separated from a financial recordkeeping and accounting perspective. That’s a must.

But how you handle your personal finances, and personal debt, can impact your business too.

For example, if you take on a bunch of debt at home (student loans, credit cards, auto loans, home mortgages, rental properties with debt, etc.) you increase the amount of money you need to take out of your business to pay your bills.

Your Lifestyle

You want to keep your lifestyle down as much a possible so you don’t end up draining your business of the cash it needs to grow.

And keeping your personal debt to an absolute minimum is one of the smartest ways to keep your lifestyle, and your personal need for cash each month, in check.

The danger with debt is that a person can buy pretty much anything they want as long as someone will loan them the money to do it.

Debt has created a dangerous trap where you can crank your lifestyle way up… as long as you promise to pay it back sometime in the future.

That promise to pay isn't always easy to live up to! Be careful… very careful!

First Things First

Until your business is making a fabulous return, you would be wise to keep your personal lifestyle down (and keep debt to a minimum).

Remember, you are working hard to win at the game of business.

Accumulating more stuff at home, with cash or with debt, will only serve to make it harder for you to win financially in business.

03/13/2012

I will be a panelist on a free Webinar on Thursday, March 22, 2012 at 11:00 a.m. EDT.

The webinar is titled - Winning at the Game of Business: Financial Management as a Competitive Weapon.

I’d like to invite you to attend the webinar because I will be sharing a very unique approach and perspective on what the financial side of business is all about.

Rusty and I have done this webinar before and received great feedback from participants.

It’s different from what you normally hear from an accountant or CPA. As an industry, we in the accounting profession have done a poor job of providing entrepreneurs the insight and perspective to help them turn financial management into a strategic asset.

I’ll be doing my part to help change that in this webinar.

Rusty Luhring, of Luhring SurvivalWare, will be a panelist as well. Rusty is the brains and genius behind the software I use to create the Monthly Confidence Package and to perform financial analysis and create cash flow projections (plus a hundred other things).

Rusty will show you how the Monthly Confidence Package is created. He will also show off the new cloud-based SurvivalWare KPI Dashboard that makes financial information available anytime, anywhere via a web-browser, iPhone, or iPad.

It will be a fun and interesting look at what it takes to win financially at the game of business.

03/12/2012

There’s a good chance you have been slowly coming to the realization that you need to get the accounting and financial side of your company in order.

Maybe you've been losing credibility with your partners in the financial community because your financials are not tight. They know your financial statements are not really accurate. They know you are slow in providing financial statements each month. They usually have to ask for them because they are not published quickly or consistently each month.

You can get by with that for a while, but when times are tough, or you need capital, that approach will no longer get it done.

The Fix

Problem is fixing the issue takes some time. And time is not on your side if you are experiencing a cash flow problem or you need cash to take advantage of a unique opportunity in the market.

It also costs you more to fix it when you have a gun to your head.

So you can wait until it becomes a huge problem and someone forces you to do it. Or you can do it now and be smart about it.

You will be fixing a weak link (which makes your company stronger almost instantly).

You will be showing everyone in the financial community that you run a quality operation and you understand how important it is to them that you have the financial side of your business under control.

03/07/2012

I can't tell you how many businesses I have seen that boosted their cash flow, temporarily, by dragging out payments to vendors. This is a dangerous practice on a number of fronts.

One of the dangers is it can take some of the pressure off you to actually address the underlying cash flow problem. The first line of attack needs to be focused on what’s causing cash flow to be so tight in the first place.

Alarms Should be Going OffThe fact that you have to pay your bills late needs to be like a fire alarm going off in your office.

If you are at point of not being able to pay your bills on time, stop and take the time to find out why.

Is it an accounts receivable problem, an inventory problem, a revenue or expense problem, or something else?

Find the cause of the problem.

This will put your attention on the area of your business that is leaking the cash.

03/05/2012

Capital expenditures is one of those uses of cash in your business that can surprise you unless you actively manage and control it every month. A capital expenditure (the purchase of a vehicle, equipment, buildings, etc.) is recorded on your balance sheet rather than as an expense in your income statement.

The cost of the asset you purchased (and capitalized) is then depreciated over the life of the asset.

As a result, you don't see the cost of that cash outlay show up immediately in your income statement. It's this accounting treatment for capital expenditures that makes it so important that you manage it closely – very closely.

A Real Life ExampleI worked with a client once that learned this lesson the hard way. They did a good job during the year of keeping their expenses in line with the budget. The big surprise came at the end of the year when they realized that capital expenditures had more than doubled during the year. Capital expenditures totaled almost $200,000 for the year compared to less than $100,000 the previous year.

What happened? Management was so focused on the income statement and keeping expenses down that they let over $100,000 of cash leak out of the company through the "back door."

There was no capital expenditures budget. There was no accountability for how this cash was being used in the company.

Make sure you are shining the light on this very important component of your cash flow every month.